A former editor for Forbes and the Financial Times, Eamonn Fingleton spent 27 years monitoring East Asian economics from a base in Tokyo. In September 1987 he issued the first of several predictions of the Tokyo banking crash and went on in "Blindside," a controversial 1995 analysis that was praised by John Kenneth Galbraith and Bill Clinton, to show that a heedless America was fast losing its formerly vaunted leadership in advanced manufacturing -- and particularly in so-called producers' goods -- to Japan.
His 1999 book "In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity" anticipated the American Internet stock crash of 2000 and offered an early warning about the abuse of new financial instruments.
In his 2008 book "In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony," he challenged the conventional view that China is converging to Western economic and political values.
His books have been translated into French, Russian, Korean, Japanese, and Chinese. They have been read into the U.S. Senate record and named among the ten best business books of the year by Business Week and Amazon.com.

The Fed Succession: Goodbye Larry Summers -- And Good Riddance

For those of us who view the American economy from abroad, one of the biggest puzzles of recent years has been President Obama’s reported wish to appoint Larry Summers the next chairman of the Federal Reserve. As Mark Leibovich has pointed out in This Town, a hilarious new book on the Washington eco-system of show-boating, social climbing, and financial conflicts, the nation’s capital is noted for a tendency for people to “fail upward”: those who fail in one job suddenly re-appear — often within months — in a bigger job where they are unleashed to do even more damage. Even by Washington standards, however, the idea that Summers had any claim on the job of Fed chairman was straight out of Through the Looking Glass. Certainly had he got the job, it would have been the ultimate proof of John Maynard Keynes’s cynical maxim that “worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” Thus it is heartening that Summers has just announced he is withdrawing from the contest (albeit it took three Democratic members of the Senate Banking Committee — Jon Tester, Sherrod Brown, and Jeff Merkley — to stare him down). Summers’s decision seems to render Fed vice chairwoman Janet Yellen a shoo-in for the top job.

As Joseph Stiglitz has pointed out, few economists deserve more blame for the financial trainwreck of the last five years than Summers. In a blog for the New York Times a few days ago, Stiglitz, who won the Nobel prize for economics in 2001, commented: “As a Treasury Department official during the Clinton administration, Mr. Summers supported banking deregulation, including the repeal of the Glass-Steagall Act, which was pivotal in America’s financial crisis. His great ‘achievement’ as secretary of the Treasury, from 1999 to 2001, was passage of the law that ensured that derivatives would not be regulated — a decision that helped blow up the financial markets.”

Stiglitz added: “Some of those who were responsible for these key policy mistakes have admitted the fundamental ‘flaws’ in their analyses. Mr. Summers, to my knowledge, has not.”

Stiglitz has also pointed out that Summers’s record of egregious error goes back at least to the mid 1990s, when he encouraged East Asian nations quickly to liberalize their capital markets, a development that led straight to the Asian financial crisis.

To cap it all, Summers has seemed far too close to the seamier side of Wall Street. According to Michelle Malkin, writing in the New York Post, he received no less than $135,000 for one speech from Goldman Sachs in 2008. He also made out like a bandit from speakers’ fees from JPMorganChase and CitigroupCitigroup not to mention such outright disaster zones as Merrill Lynch (the crippled “thundering herd” outfit that has had to be ignominiously rescued by Bank of AmericaBank of America) and Lehman Brothers. As reported by Clea Benson of BloombergBloomberg, Summers’s net worth as of 2009 was at least $17 million, more than 40 times the figure he reported in 1999. What made the difference was Wall Street’s unerring generosity towards those public intellectuals whose ideas sell the American public interest down the river.

Am I being too harsh? Not at all. Those of us who criticize Summers’s record aren’t all merely wise after the fact. A lot of people over the years have insisted on comprehensive financial regulation, not least the architects of the 1930s Glass-Steagall system, which kept the U.S. banks out of trouble for four decades — the best four decades in American economic history. If you want to find contemporary policymakers who have understood all along the case for financial regulation, you need go no further than Canada, which did not follow the United States down the road to deregulation. In contrast with the repeated crises which have rocked U.S. finance for more than three decades, the Canadians have been rewarded with a consistently efficient, crisis-free financial system. It is a similar story in much of central and northern Europe, where for the most part financial regulators have maintained a firm grip in the face of constant exhortations from the United States and the United Kingdom to deregulate. In my own case, I ridiculed new financial instruments in In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity, a book published in 1999. The heading for my chapter on finance said it all: “Finance: A Cuckoo in the Economy’s Nest.”

A final comment on Summers’s popularity on the speaking circuit. To say the least, it is a fair bet that Wall Street would have been less inclined to unload such largesse on him if he had a record of advocating prudent financial regulation.

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Summers was forced to withdraw. Some Democrat Congressmen opposed to his nomination. This is an indirect hit at the president, even his own party lawmakers seem to be strongly objecting to his proposal. Anyway, why is Bernanke quitting? Has Fed outlived its purpose? (btt1943)

“Often wrong but sure of himself” (http://www.huffingtonpost.com/2013/09/16/larry-summers-withdrawal-wall-street_n_3931648.html?ir=Politics&ref=topbar) is an apt synopsis of Larry Summers during the Clinton administration. Strangely, the media (and even Obama!) have skipped over Summers’ huge blunder concerning regulating subprime mortgage derivative securities (http://www.thewordenreport.blogspot.com/2013/09/larry-summers-bows-out-advise-and.html). For example, Obama wrote, “Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today.” (http://www.nytimes.com/2013/09/16/business/economy/summers-pulls-name-from-consideration-for-fed-chief.html). Was Obama hiding Summers’ faulty and sordid behavior because the economist is “a member of the club” even as Wall Street had had enough of him? Maybe a titan sent him a message: Drop out now! If so, perhaps the bank execs on Wall Street are pulling the strings in Washington even more so than the public supposes. “Pay no attention to the man behind the curtain!”

Summers ruined the endowment of Harvard when he was president – wasted billions os assets on Credit Default Swaps – a know speculation. He lost 30% or Harvard’s assets. He also called two black professors on the carpet – a highly unusual move showing NO COGNIZANCE of normal University procedures (if the president questions the performance of a faculty member he should ask the relevant dean to set up an outside evaluation of the department). Both professors left at once for Princeton! Summers is a shoot-from-the-hip guy – does not look at precedents, the over-all scene – just goes at things. He also insulted the female faculty and students – he thinks women can’t think correctly.

Glass-Steagall was passed in 1932. So you’re saying that 1932-1972 were “the best four decades in American economic history.” That alone is such a glaringly odd statement that I can’t even begin to address the implied causality.

I appreciate those graphs Mark, and although you linked nominal data the Real per capita GDP isn’t all that different. I think my concern is that it’s a very post-hoc statement: “Assuming Glass-Steagal was a catalyst for good, what statement I can make to support that?” Not inaccurate, but not really a cause-effect statement.

I apologize for not having an easy link to share back, I wanted to see for myself so I went to measuringworth.com and graphed Real per capita on a logarithmic scale. (And also pulled it into Excel.) Doing that I can see a fairly steady trendline from about 1840-1928, growing about 1.63% per year. And from 1948 to 2006 an even steadier one at 2.21% per year.

Those are both periods one could talk about and try to determine cause/effect. You could also do so for 1933-1944, which showed an amazing 9.1% per year. (Although doing so conveniently lumps in the 11.8% per year WW2 effect, and excludes the significant declines before and after that period.)

Point being, if your measurement is Real per capita GDP you can make a number of interesting cases but there’s no data-based reason to call out “four decades.”

“Curious as to why the US dollar money supply went wild about 33 years ago? Well, it all started during the height of the Vietnam war in the late-1960s and Nixon’s forced abandoment of the “gold standard” in August 1971 that led to a free floating dollar. The combined forces of a free floating dollar, a growing U.S. trade deficit, and massive debt associated with the ongoing Vietnam War, collectively contributed to both volatility and devaluation of the dollar in the 1970s”

“In order to prevent this monetary transition to a basket of currencies, the Nixon administration began high-level talks with Saudi Arabia to unilaterally price international oil sales in dollars only – despite U.S. assurances to its European and Japanese allies that such a unique monetary/geopolitical arrangement would not transpire. In 1974 an agreement was reached with New York and London banking interests which established what became known as “petrodollar recycling.”

“That year the Saudi government secretly purchased $2.5 billion in U.S. Treasury bills with their oil surplus funds, and a few years later Treasury Secretary Michael Blumenthal cut a secret deal with the Saudis to ensure that OPEC would continue to price oil in dollars only. ”

You are right to say that lax lending standards for real estate loans were a major factor in the subsequent crash but the effect was considerably compounded by the derivatives boom and the pattern in a deregulated financial system for securities sales people to regard their clients as “Muppets.” In any case in a properly regulated financial system, lending standards would not have been allowed to slip in the first place. As the Canadians have demonstrated, it is possible to regulate a financial system so that (1) it is efficient and (2) it is stable.